Generalizing about SaaS (Software as a Service) is hard. To prune some of the confusion, let’s start by noting:
- SaaS has been around for over half a century, and at times has been the dominant mode of application delivery.
- The term multi-tenancy is being used in several different ways.
- Multi-tenancy, in the purest sense, is inessential to SaaS. It’s simply an implementation choice that has certain benefits for the SaaS provider. And by the way, …
- … salesforce.com, the chief proponent of the theory that true multi-tenancy is the hallmark of true SaaS, abandoned that position this week.
- Internet-based services are commonly, if you squint a little, SaaS. Examples include but are hardly limited to Google, Twitter, Dropbox, Intuit, Amazon Web Services, and the company that hosts this blog (KnownHost).
- Some of the core arguments for SaaS’ rise, namely the various efficiencies of data center outsourcing and scale, apply equally to the public cloud, to SaaS, and to AEaaS (Anything Else as a Service).
- These benefits are particularly strong for inherently networked use cases. For example, you really don’t want to be hosting your website yourself. And salesforce.com got its start supporting salespeople who worked out of remote offices.
- In theory and occasionally in practice, certain SaaS benefits, namely the outsourcing of software maintenance and updates, could be enjoyed on-premises as well. Whether I think that could be a bigger deal going forward will be explored in future posts.
For smaller enterprises, the core outsourcing argument is compelling. How small? Well:
- What’s the minimum level of IT operations headcount needed for mission-critical systems? Let’s just say “several”.
- What does that cost? Fully burdened, somewhere in the six figures.
- What fraction of the IT budget should such headcount be? As low a double digit percentage as possible.
- What fraction of revenues should be spent on IT? Some single-digit percentage.
So except for special cases, an enterprise with less than $100 million or so in revenue may have trouble affording on-site data processing, at least at a mission-critical level of robustness. It may well be better to use NetSuite or something like that, assuming needed features are available in SaaS form.*
*Truth be told, I’m not up to speed on mid-range SaaS application suite alternatives.
Continuing that thought — if you’re a mid-range application software provider, you have to develop a SaaS version of your product line. That’s a very different business model than the apps + OEMed platform you’re probably providing now, but it’s the best way to serve your customers going forward. And by the way — while mid-range application software is commonly sold on a regional basis, SaaS can be sold more globally; after all, the the need for onsite service is eliminated, and price points should in most cases fit with telephone sales. Yes, national language and regional data privacy rules are both concerns, but they still leave the available markets looking much bigger than regional resellers have traditionally enjoyed. So expect shake-outs in a whole lot of vertical markets, as vendors horn in on each other’s territories, and a few elephantine winners perhaps emerge.
The argument above assumes that extreme reliability is needed. So there’s nothing necessarily wrong with a small team of business analysts sticking an RDBMS appliance* in a corner and managing it themselves. If it sputters from time to time, who cares; using it still may be easier than getting that data in and out of the cloud. But eventually, if all the data is remote anyway — SaaS, website, etc. — then it may make sense to do analytics remotely as well.
*Previously, that appliance might have been from Netezza; now, my first thought is the cheaper — albeit more limited — Infobright.
The arguments that direct smaller companies toward SaaS apply to large enterprises to, but they aren’t as dispositive. Larger enterprises can actually afford to do their own IT operations if they want to. What’s more, moving away from in-house operations is harder for big firms, due to the larger and more customized portfolio of legacy systems they’re likely to have. That said:
- Almost all enterprises should have their internet-facing systems offsite, even if just via co-location. The core reasons are that ingesting high-volume inbound network traffic is inherently difficult, and security issues make it much tougher yet. In addressing these challenges, specialists enjoy significant economies of scale.
- Most enterprises will have plenty of SaaS silos. If nothing else:
- Complex machinery will increasingly “phone home” for help staying in good working order. That’s a form of SaaS.
- Information providers and aggregators tend to deliver via SaaS.
- Various kinds of collaboration and communication apps, from Google Mail to Dropbox, live in the cloud. Personal productivity applications, from word processing to Photoshop, may be following.
- “Rodney Dangerfield” departments — i.e., ones unhappy with the respect and attention they get from central IT — often turn to SaaS or similar outsourcing. Human resources is an obvious example, from Automatic Data Processing to Employease to, these days, Workday.
That leaves us with the questions as to when and how large enterprises should or will move their core applications to SaaS and/or the cloud. Given the length of this post, I won’t try to answer them now. But for starters:
- Enterprises don’t like to rip and replace their apps, except in consolidation projects, as long as they can avoid doing so.
- Cloud/remote computing economies are less convincing if you already have your computer rooms staffed and set up.
- A key benefit of SaaS is that vendors control and drive the upgrade cycles. One cost of that is restrictions on customization, although you can also build apps and app extensions on Paas//DBaaS/Waas (Platform/DataBase/Whatever as a Service) offerings such as force.com.
- Lock-in is a serious concern, for application and platform offerings alike. Not only are you betting on one vendor’s software black box, you’re also betting on its remote computing operation. If you grow dissatisfied with either, or with their pricing, you may not have much opportunity to escape.